China’s property stock rebound faces reality check in 2025
CHINA’S real estate woes look set to get worse before they get better, raising the prospect of a miserable year for property shares despite a recent bounce.
Property developers in the country are still suffering from a years-long slump that has sapped the confidence of potential buyers, caused a sharp decline in house prices and left millions of homes unfinished.
Economists think both home prices and sales in the country will fall next year. The best they can say: the decline may be slower than it was in 2024.
The gloomy outlook suggests that a recent improvement in the share prices of Chinese developers may prove short-lived. A Bloomberg gauge of the sector was around 2.5 per cent higher for the year by Dec 23, following four consecutive years of declines. But the rally – largely the result of a stimulus-fuelled bounce in September – is already losing steam.
A share price recovery for Chinese developers may hinge on a persistent recovery in sales, according to analysts at Morgan Stanley, but that appears a long way off. The Wall Street bank expects sales to drop 12 per cent next year, and home prices to decrease by high single digits in percentage terms from November’s level.
Fitch Ratings expects prices to fall by 5 per cent in 2025 and new-home sales to decline 10 per cent by area.
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State links help
The pressure on stock prices means investors should focus on companies with strong links to the government, according to analysts. China Overseas Land & Investment and China Resources Land are among the top picks from recent research notes released by Morgan Stanley, Morningstar and CGS International Securities HK.
“We see that some large central state-owned developers have room for valuation upside,” said Jeff Zhang, an analyst at Morningstar, who said home prices may stabilise in the second half of next year.
Morgan Stanley expects market consolidation to speed up in 2025 as privately-owned developers focus on finishing projects and deleveraging. That will create more room for leading state-owned developers to gain market share, according to analysts at the bank.
Still, the wider sector remains a trouble spot in China’s economy – and there are signs that the problems facing some companies are mounting.
China’s financial industry regulator recently asked insurers to disclose their exposure to China Vanke, the country’s fourth-largest developer, sounding alarm bells about the risk of default.
New World Development, a Hong Kong company with exposure to mainland China, has asked lenders to delay some of its maturities. Parkview Group is looking for buyers for a well-known Beijing mall.
At the recent Central Economic Work Conference, Beijing said it would ramp up its effort to help the market, although it offered little in the way of specifics. Local governments have also tried to help, with moves by officials in Shanghai, Beijing and Shenzhen to ease home purchase restrictions.
But the piecemeal approach to stimulus has so far produced only brief responses in the stock market, and some analysts think the sector’s problems are too entrenched for the positive performance this year to mean much in the longer term.
More policy support could trigger “short-term tactical rebounds” for property shares next year, but the market will continue to be weighed down by structural challenges, said Bloomberg Intelligence analyst Kristy Hung. “Weak fundamentals may remain a drag on valuations,” she added.
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